Adjusted Exercise Price

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DEFINITION of 'Adjusted Exercise Price'

1. An option's strike price after adjustments have been made for stock splits to its underlying security.

2. A term used to describe the strike prices for options written on Ginnie Mae pass through certificates.

INVESTOPEDIA EXPLAINS 'Adjusted Exercise Price'

1. Anytime changes occur on securities in which options are written, the strike price and delivery quantity must be adjusted in order to ensure that neither the long or short holder of the options are affected. For example, if an option for stock ABC had an exercise price of $50, and the underlying stock split 2 for 1, then the option would have an adjusted exercise price of $25 for 200 shares.

2. The interest rates assigned to GNMA pass through certificates differ from that of their benchmark rate. As such, these rates must be adjusted so that the investor will receive the same yield.

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